China recovery not all good news: experts

Colin Brinsden, AAP Economics Correspondent

There are further signs the Chinese economy is in recovery mode, with new data showing its manufacturing sector growing for the first time in 13 months - a welcome result for Australia's iron ore and coal exporters.

The HSBC flash China manufacturing purchasing managers index (PMI), which is released a week before the official reading, was 50.4 points in November, compared with 49.5 points in October, and above the crucial 50-point level that separates growth from contraction.

"However, it is still the early stage of recovery and global economic growth remains fragile," Mr Qu said in a note to clients.

He said this means Chinese authorities should continue with their policy of low interest rates to strength the recovery.

Commonwealth Securities chief economist Craig James said the result was not only encouraging for China, but also for Australia and the rest of the world.

However, while Australia would prefer a stronger Chinese economy, it does carry a "sting in the tail" because increased demand for raw materials will mean continued strength in the Australian dollar, he said.

That will not only will make life tough for a raft of Australian industries, including retailing, manufacturing, tourism and export industries, it will also create challenges for the Reserve Bank of Australia (RBA).

"If the Aussie dollar does indeed trend higher in line with higher demand and prices of raw materials, then there is no issue, that's what the currency is expected to do," Mr James said.

"But if the Aussie rises further and faster than commodity prices then it represents a tightening of policy settings."

As such, another interest rate cut remains on the table, but the RBA will need to balance better conditions in China and the US with uncertainty about Europe, soggy domestic conditions and a firm Aussie dollar.

"So it seems another coin toss whether the Reserve Bank cuts rates in December or holds off until the new year," Mr James said.